Buddies

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1 November 2019

We all know them: the general medical practice, the law firm, the group of architects, the accountancy firm. From times immemorial these businesses are usually set up as partnerships. From a legal perspective the partnership is the odd man out in the business community. Since December 15, 2011 the cooperative venture has even ceased existing under the name ‘partnership’ on Curacao.

Although most people still speak of a ‘partnership’, officially we now call it a ‘corporation under a common name’ here. However, the guiding statutory principle did not change. It regards a cooperation between various persons. They bundle their knowledge, expertise and labor (‘contribution’) and offer this to the outside world under a common name with the intention of consequently jointly earning money. Usually, in case of a corporation under a common name a service is offered, e.g. legal assistance, medical assistance, dental assistance or financial organization.

“The reality is also that often there are not just one or two but even four or eight captains on the ship”

From a legal perspective and from the perspective of corporate governance, the corporation under a common name has a number of interesting features. Legally the corporation under a common name lacks legal personality. This is an essential difference with a public corporation or a foundation. The persons who represent a public corporation or a foundation (the directors or officers) do not legally bind themselves but exclusively the corporation or foundation. This is different in case of a corporation under a common name. The managing partner can bind the corporation under a common name legally, but he also remains personally liable for the debts of the business. And alongside him his fellow partners. This is pleasant for creditors because they consequently have additional recovery options at their disposal.

Fiscally a corporation under a common name is financially transparent. The profit generated by the corporation under a common name is distributed among the partners and is taxed from a fiscal perspective to all of them individually. Hence, the corporation under a common name does not pay company tax. Essentially, a corporation under a common name is a corporation agreement between a group of persons. This agreement implies that you act publicly with one face and one voice. You are actually a sum of persons with various expertises, characters and motives. If all goes well then the whole is more than just the sum of the components. From this perspective a partnership is like a marriage, albeit not just between two, but between multiple persons. Spouses also occasionally refer to their other half as their ‘buddy’. Besides, love is neither required nor necessary in a corporation under a common name. Cooperation is. The whole must have added value, otherwise it is better not to even start it. This also renders the corporation under a common name very interesting from the perspective of corporate governance.

The partners of a corporation under a common name basically all have the same vote. Together they determine the policy. When you all agree on the direction, that is wonderful. The collectivity gives ample energy and momentum. However, the reality is also that often there are not just one or two but even four or eight captains on the ship. Then it is difficult to decide on the direction. If one says ‘we are going left’ then there is always someone else who nonetheless wants to turn right for a bit. If there is truly question of a difference of opinion then the required collectivity quickly has a paralyzing or even destructive effect. It is actually remarkable that not much attention is paid to the regulation of ‘checks and balances’ at corporations under a common name. After all, this represents the core of corporate governance. At corporations under a common name it is often the poor relation. In recent years a number have already become insolvent or have disappeared on Curacao due to internal troubles and a lack of common direction. In those instances the business marriage broke down. This should actually not be possible because employees and clients or patients suffer from it. Partners of a corporation under a common name should therefore set up governance better. Then the chance of staying buddies increases.

This blogpost is also available in Papiamentu. Download the PDF version. You can also download the English PDF version.

Do you have a question about corporate governance? Please email it to governance@ekvandoorne.com and perhaps your question will be discussed in the next blogpost.